Thread by @CaJainankur

#ISMTLTD #ISMT Ltd & #KIRLFER #Kirloskar Ferrous Industries Ltd (KF) announced a mega #merger plan. #specialsituation

If we recollect, KF had done a major investment in ISMT in Mar 22, and ISMT settled its huge debt with lenders at a huge discount.

Here is my quick learning:-

1) KF has fully backward integrated operations ranging from iron ore mines to machined castings as well has a very strong client base across the globe. ISMT is one of the most diversified manufacturers of specialized seamless tubes in the world.

2) Apart from the regular synergy like economies of scale & cost optimization, the merger will help in expanding reach, cross selling opportunities and better combined unit economics and financial ratios.

3) Merging of the business will bring the benefits of forward integration and diversification of product portfolio to the business of ISMT and the combined entity will benefit.

4) Share Exchange Ratio (SER): KF to issue 17 shares to the SHs of ISMT for every 100 shares held by them in ISMT.

KF CMP Rs 276
ISMT CMP Rs 62

The SER is favorable to the SH of KF, as ISMT public SH are getting just Rs 4692 value of KF shares for Rs 6200 of ISMT shares.

5)
My quick working of the consolidated entity financials is as below:

6) Expected market cap, basic ratios and valuation are as below:

7) The scheme will need to get approval from NCLT, SEBI, Exchange, SHs and creditors of both the entities. And it may take a year or so to get effective.

8) KF as the merged entity is going to get huge benefit by the integration. The valuation is not high and hence there is a sufficient margin of safety. I would be buying with a time horizon of a few years.

Would be happy to hear your feedback. Will update further learning here.